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Galbraith and the Economics of Innocent Fraud

Earlier this morning I was reading one of the threads over at Ask E.T., the ongoing discussion hosted by Edward Tufte. It was a discussion of Richard Feynman’s conclusion to his report on the Challenger accident:

For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled

I thought it fitting relative to John Kenneth Galbraith’s extended essay The Economics of Innocent Fraud. In it, Galbraith reflects on our collective capacity for self-delusion in matters economic. Here’s one representative sample of his ruminations:

The myths of investor authority, of the serving stockholder, the ritual meetings of directors and the annual stockholder meeting persist, but no mentally viable observer of the modern corporation can escape the reality. Corporate power lies with management — a bureaucracy in control of its task and its compensation. Rewards that can verge on larceny. This is wholly evident. On frequent recent occasions, it has been referred to as the corporate scandal.

Something positive must also be said. The modern corporation has a highly serviceable role in contemporary economic life, more than that of the primitive, aggressively exploitative capitalist entities that preceded it.

These adverse tendencies must now be known, celebrated, and addressed. The easy emphasis is on the error. More important is well-designed and enforced remedy. [p.31. The Economics of Innocent Fraud.]

You can read the book in a quiet evening. You’ll be thinking about it for much longer.